Can 2021 be a good year?

The business case for an optimistic outlook

Expectations were high for 2021 – a new year, vaccine rollouts and the return to freedom and some sort of normality. One look at the news and you might think this was all a dream. So, I wanted to set out the case for being optimistic whilst still recognising the challenges we face. I recently spoke to colleagues about how we should continue to look for opportunities to support our customers and each other through these difficult conditions, reflecting on our purpose which is “to transform the way people think and work so their organisations can thrive”. It is so important to look forward and focus our efforts on adapting instead of looking backwards and wishing this wasn’t happening. We reflected on the first quarter of our year at Sage and why we can be proud of doing exactly that. 

Undeniably, the operating environment globally is tough. Many people are trying to juggle family commitments like childcare and still do their jobs. Small and medium size businesses (SMEs) have been amongst the hardest hit by the pandemic. In the UK half of SMEs are operating at a loss – and the picture is similar in other regions. This might sound bleak, but one of the reasons I am so optimistic is because I have also seen great agility from our customers, and because I believe it is these businesses that will lead us out of the downturn.

Of course, not every business will make it, but those that do are likely to have invested in sustainable improvements to their businesses, while the people who set up new businesses will make sure agility is built in. Coming into the crisis just half of UK SMEs said that investing in technology was a priority, yet 73% of businesses have turned to technology during the pandemic to keep their business functioning. With scaled back staff and profits, small businesses are doing more with less, with the benefit of their digital investment. The pandemic has shown that digital transformation is essential for business adaptability, productivity and long-term resilience, and our own polling shows that SMEs are thinking about the longer-term even as they navigate near term hurdles.

US based Walden Behavioral Care quickly adopted a telehealth model to continue to treat patients at the height of the pandemic, and used Sage Intacct to switch its forecasting from yearly to two-monthly to adapt to Covid-related change in its operating environment. The agility built into the business through digitalisation means overall budgeting efficiency is up at least 50%. Rooba, an online furniture company and another Sage customer, launched just before the pandemic, bringing forward a large tech investment to capitalise on the boom in home decorating and rapidly gain market share. It is the agility shown by businesses like this that inspire my confidence in the future.

These great companies are not alone. There were eight million user logins to Sage Business Cloud in December, and this number is growing, up from 3.6m a year earlier. During Q1, we saw strong growth in cloud products, demonstrating that our investment and strategic focus is delivering results, but also that SMEs, our core customer base, are planning for the future - which means being more digitally-enabled.

And here’s why we believe that future is so critical. In the UK SMEs account for half of the UK’s economic output and more than 60% of jobs. In other European countries like France the figures are even higher while in the US they account for just under half of net new jobs. SMEs are quite simply fundamental to economic recovery. We’ve been lobbying the UK government to introduce tax breaks to incentivise SMEs to invest in digital tools to help them build towards a strong post-Covid future. If we support SMEs to weather the short-term impact of the pandemic, and give them confidence for the long term, they can lead the recovery – creating jobs, opportunities and thriving economies globally.

But I think we can go further still. Sage recently announced a Small Business Growth Programme in our home region of the North East, worth up to ￡1.4 million to provide training and tools to small businesses and start-ups to help them build for a post-Covid recovery. We’ve teamed up with ACCA (the Association of Chartered Certified Accountants) to launch a package of advice and free trial technology to help more accountancy practices launch in the UK. And our new Sound Advice podcast will help to put SMEs on the path to financial success, through advice from Sage accountants, customers, and successful founders.

We’ve continued to invest in innovation that will bring real benefit to our customers today. In December we announced a partnership with Brightpearl a market leading eCommerce Platform to support customers as they digitally transform their retail operations. We worked with partners including Satago, the finance and cash management app, to expand the Sage Accounting eco-system, making it even easier for Sage Small Business customers to manage processes across finance and people, all within Sage Business Cloud. And we made further progress on our mission to bring the Intelligent Organisation to our customers – with the introduction of Sage Intelligent Time and the General Ledger anomaly detection features available in Sage Intacct – enabling customers to focus on their customers as AI takes care of admin.

Our own confidence for the future is grounded in our capabilities. Against strong pre-Covid comparators, in Q1 our recurring revenue increased by just under 5%. As a result, subscription penetration increased to 68% (up three points on where we closed our financial year and double what it was four years ago) and Sage Business Cloud penetration increased to 64% (also up three points from the year-end) driven largely by new customers as SMEs take the first steps towards operating in the ‘new normal’.

We too are adapting to the new normal. We stated at the full year results that we will invest through this economic cycle, specifically in research and development, and sales and marketing, and we’ll continue to invest in other areas including our colleagues who are so important to achieving our long-term vision and to whom we owe a huge debt of thanks. I’m proud that Glassdoor has recognised the spirit and engagement of our colleagues in countries around the world.

Despite the undeniable difficulties presented by the pandemic, we believe there is good reason to remain optimistic for 2021. Business of all sizes will have an opportunity to thrive and we must support them to be the best they can be. SMEs globally have shown great fortitude, it is now up to all of us – enterprises like Sage that serve SMEs, governments, consumers and the businesses themselves - to make sure the recovery is as inclusive and as global as it should be.